BV News and Trends December 2024
A monthly roundup of key developments of interest to business valuation experts.
Oakes v. Oakes David C. Oakes & Leadwise, Inc.
Once again, a court, in this case a state appellate court, questioned the efficacy of projections used to determine the value of a business using the income approach. The appellate court remanded the issue to determine whether a major assumption of the projections “failed.” Additionally, because of the size of the equalization payment, likely to be paid over a number of years, the appellate court ordered that the husband provide security for the equalization payment. This case highlighted the complexity of divorce proceedings involving high-value assets, the importance of credible valuations, and the need for appropriate safeguards in financial obligations.
Ohio Appellate Court Remands for Determination of Efficacy of Projections in Determining Value and Orders Security From Husband for Equalization Payment to Wife
Once again, a court, in this case a state appellate court, questioned the efficacy of projections used to determine the value of a business using the income approach. The appellate court remanded the issue to determine whether a major assumption of the projections “failed.” Additionally, because of the size of the equalization payment, likely to be paid over a number of years, the appellate court ordered that the husband provide security for the equalization payment. This case highlighted the complexity of divorce proceedings involving high-value assets, the importance of credible valuations, and the need for appropriate safeguards in financial obligations.
DOL to ‘heat up’ regs for ESOP valuations
Long-awaited regs from the Department of Labor on ESOP valuations are a “forthcoming attraction that will heat up a fair amount of our resources for the fall,” said Jeff Turner, acting deputy director of the Office of Regulations and Interpretations at the Employee Benefits Security Administration (EBSA), reports the American Society of Pension Professionals & Actuaries (ASPPA).
BV News and Trends October 2024
A monthly roundup of key developments of interest to business valuation experts.
Barney v. Comm'r
At the date of this decision, the IRS was becoming more aggressive in enforcing the requirement of Treasury Regulation § 1.170A-13(c)(3)(ii)(D), which required that a qualified appraisal include “the terms of any agreement or understanding entered into … by or on behalf of the donor or donee that relates to the use, sale, or other disposition of the property.” The Tax Court had been taking the position that, where the appraisal contained sufficient information to allow the commissioner to evaluate the contribution, the taxpayer’s substantial compliance will adequately serve the purpose Congress intended. Here the motion for partial summary judgment was denied since “there exists a genuine dispute of material fact precluding summary judgment as to whether (or not) petitioner substantiated his charitable deduction claim with a qualified appraisal.”
U.S. Tax Court Denies Motion of IRS for Partial Summary Judgment to Disallow Taxpayer’s Claimed Charitable Deduction
At the date of this decision, the IRS was becoming more aggressive in enforcing the requirement of Treasury Regulation § 1.170A-13(c)(3)(ii)(D), which required that a qualified appraisal include “the terms of any agreement or understanding entered into … by or on behalf of the donor or donee that relates to the use, sale, or other disposition of the property.” The Tax Court had been taking the position that, where the appraisal contained sufficient information to allow the commissioner to evaluate the contribution, the taxpayer’s substantial compliance will adequately serve the purpose Congress intended. Here the motion for partial summary judgment was denied since “there exists a genuine dispute of material fact precluding summary judgment as to whether (or not) petitioner substantiated his charitable deduction claim with a qualified appraisal.”
BV News and Trends September 2024
A monthly roundup of key developments of interest to business valuation experts.
Estate of Anne Milner Fields v. Comm'r
Importance: While this case was a memorandum decision and did not, therefore, set precedent, it was still a warning to estate planners that last-minute transfers of property from an individual prior to death must have real, verifiable, and justifiable nontax purposes. The Tax Court noted that the timeline (i.e., shortly before the decedent’s death) cast significant doubt on the transactions.
Transfers of Decedent’s Properties by Nephew Shortly Before Death Were Not a Bona Fide Sale for Adequate and Full Consideration
While this case was a memorandum decision and did not, therefore, set precedent, it was still a warning to estate planners that last-minute transfers of property from an individual prior to death must have real, verifiable, and justifiable nontax purposes. The Tax Court noted that the timeline (i.e., shortly before the decedent’s death) cast significant doubt on the transactions.
DOL prevails in ESOP valuation lawsuit
The former owners of the company behind those ubiquitous Cruise America RVs must not be happy campers after a recent ruling from an Arizona court. The court found that they violated ERISA and breached their fiduciary duties when setting up an ESOP that the DOL said overpaid them for their shares.
Am. Nw. Distribs. v. Four Roses Distillery LLC
Even under the new FRE 702, testimony was admissible if it was “reliable” and based on an acceptable foundation and related to the case at hand. The expert in this case met all these requirements. Since the methodology the expert used was not challenged, that part of the new FRE 702 was not applicable. The court admitted the expert.
Washington U.S. District Court Rules Damages Expert’s Calculations Are ‘Reliable’ and Admissible Under Rule 702
Even under the new FRE 702, testimony was admissible if it was “reliable” and based on an acceptable foundation and related to the case at hand. The expert in this case met all these requirements. Since the methodology the expert used was not challenged, that part of the new FRE 702 was not applicable. The court admitted the expert.
Julie A Su v. Bensen
This case was one in a line of suits the Department of Labor brought against fiduciaries, including trustees and owners of businesses, in ESOP transactions challenging the value of the business the owners/defendants sold. Once again, the DOL won this case choosing the value their expert presented, which was substantially below the purchase price the ESOP paid for the business.
The U.S. District Court (Arizona) Accepts the Valuation of the DOL’s Expert in Finding the Defendants Breached Their Fiduciary Duties (ESOP)
This case was one in a line of suits the Department of Labor brought against fiduciaries, including trustees and owners of businesses, in ESOP transactions challenging the value of the business the owners/defendants sold. Once again, the DOL won this case choosing the value their expert presented, which was substantially below the purchase price the ESOP paid for the business.
Senators to DOL: Get moving on ESOP valuation rule
U.S. Senator Roger Marshall (R-KS) led a bipartisan letter calling on the U.S. Department of Labor (DOL) to complete a final regulation governing the “adequate consideration” exemption for employee stock ownership plans (ESOPs).
Reminder: Email your senator regarding DOL’s ESOP valuation rule
Regardless of whether your practice involves ESOP valuations, you will want to consider a request from The ESOP Association (TEA) to email your senator about signing a bipartisan letter being sent to the Department of Labor (DOL) about an important valuation rule.
Action needed! Email your senator re: DOL’s ESOP valuation rule
Regardless of whether your practice involves ESOP valuations, you will want to consider a request from The ESOP Association (TEA) to email your senator about signing a bipartisan letter being sent to the Department of Labor (DOL) about an important valuation rule.
The Aftermath of the United States Supreme Court’s Decision in Connelly v. Internal Revenue Service: Q&As on its Meaning and the Ramifications on Future Planning, Particularly on Business Valuation
The United States Supreme Court recently unanimously affirmed the Eighth Circuit in Connelly Est. v. Internal Revenue Service. Long-time co-collaborators Ed Morrow and Paul Hood, who’ve weighed in at every level of this case, discuss the decision and its potential ramifications on planning, particularly on business valuation.
DOL’s ESOP valuation slammed in amicus briefs to SCOTUS
The American Society of Appraisers (ASA) and The ESOP Association (TEA) have filed amicus briefs with the U.S. Supreme Court related to the Bowers ESOP case in support of the petitioners’ attempt to recover attorneys’ fees and costs from the government.
Kasnetz v. Kasnetz
The known or knowable issue arises frequently in valuations of businesses. This Hawaii divorce case once again affirmed that information or data that was not known or knowable at the date of valuation cannot be used to determine the value at that date.
Hawaii Appellate Court Affirms Rejection of Value for Violation of Known or Knowable
The known or knowable issue arises frequently in valuations of businesses. This Hawai'i divorce case once again affirmed that information or data that was not known or knowable at the date of valuation cannot be used to determine the value at that date.
In re Gerber
The court-appointed valuation expert in this divorce case determined a control value by deducting a discounted minority interest value from the 100% fair market value. Both the trial court and appellate court accepted this methodology.
Illinois Court Adopts Valuation of Its Own Expert—Determines Control Value by Deducting Discounted Minority Value
The court-appointed valuation expert in this divorce case determined a control value by deducting a discounted minority interest value from the 100% fair market value. Both the trial court and appellate court accepted this methodology.
Connelly v. United States (II)
The U.S. Supreme Court took on this case because of a split between two circuit courts. In the first case, Blount v. Commr., the 11th Circuit Court of Appeals reversed the Tax Court and excluded the insurance proceeds that accrued as a result of the death of the shareholder. In the Connelly case, the Tax Court once again included the insurance proceeds in the estate. The 8th Circuit affirmed the Tax Court, and the Supreme Court now unanimously affirmed the 8th Circuit, thus negating the decision of the 11th Circuit in Blount.